Exchanges and interdealer brokers, squeezed in recent months by tumbling trading volumes, face further pressure as their biggest clients look to cut their trading fees by $1.5bn (€1.1bn) to improve returns, according to new research.

In its Third Quarter Market Report, the Boston Consulting Group said the deepening financial crisis could spur investment banks to tackle the “overlooked cost item” of brokerage, exchange and clearing fees.

The top 20 investment banks spend a combined $20bn annually on such fees, with the biggest spender, Goldman Sachs, paying $3bn last year, followed by Morgan Stanley with about $1.65bn, and Merrill Lynch with $1.45bn.

Banks could reduce these costs by between 5% and 7.5% in little more than six months by following four key principles, Boston Consulting said.

First, they should review their use of interdealer-brokers, and improve contract terms by requesting volume discounts and steering trades to preferred brokers.

Second, they should ensure orders are sent to the cheapest trading venue.

Third, banks should improve their global clearing systems. And fourth, they should match a greater share of proprietary trades internally.

The report comes as banks face growing pressure to improve returns following heavy losses last year.

Related

Last month, Goldman Sachs reported a loss of $2.2bn for the fourth quarter, while Morgan Stanley said it lost $2.1bn during the period.

Boston Consulting’s proposals risk further undermining stock exchanges, which have been hit by falling equity volumes and greater competition from new trading venues.

The number of trades executed on Europe’s three largest exchanges fell almost 40% between October and November, as fund managers retrenched in the face of extreme market volatility and restricted access to capital, according to the World Federation of Exchanges, a trade body.

Several interdealer brokers contacted by Financial News declined to comment.